Allianz Aktiengesellschaft Annual Report 1999

Transcription

1 Allianz Aktiengesellschaft Annual Report 1999

2 At a glance Allianz Aktiengesellschaft Gross premiums written Mio 5, , , Retention in % Loss ratio on own account in % Expense ratio (gross) in % Underwriting result Mio Non-underwriting result Mio 1, Earnings before tax Mio 1, Taxes Mio Net income Mio Investments under management Mio 35, , , Shareholders equity Mio 10, , , as percent of net premium income in % Insurance reserves Mio 15, , , Dividend per share 1.25 DM 2.20 DM 1.90 Total dividend Mio Allianz share price at year end Allianz market capitalization at year end Mrd

3 Annual Report 1999

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5 Contents Report of the Supervisory Board Supervisory Board Board of Management Management Report Recommendation for Appropriation of Profit Allianz Aktiengesellschaft Financial Statements Balance Sheet Income Statement Notes Auditor s Report Memberships Photographic Credits, Printing Credits

6 4 Report of the Supervisory Board majority holding in the U.S. asset management firm PIMCO Advisors L.P. This acquisition lifted Allianz to the ranks of the world s leading asset managers. An extraordinary meeting on March 16, 2000 addressed an agreement in principle between Deutsche Bank, Dresdner Bank and Allianz. The intention was for Allianz to reduce its holdings in the two banks in conjunction with their planned merger and for Allianz to acquire certain activities from the merged bank. We continually monitored the Board of Management s conduct of the Company s affairs in accordance with our responsibilities under the law and the Company s statutes. The Supervisory Board held four regular meetings in Between these meetings, we were continually informed of the current business situation by means of regular discussions with and written reports from the Board of Management. We requested and received continual reports from the Board of Management on the talks being held on the issue of compensation for prewar policies that were not paid out as a result of Nazi persecution. We welcome the accession of the domestic and foreign Allianz companies to the German Industry Foundation Initiative and their cooperation with the International Commission. We were continually informed about the preparations for the millennium changeover. The date conversion gave rise to no significant problems, neither in the companies of the Allianz Group nor among our customers. Detailed reports regarding the development of the Allianz Group, Allianz AG and its major affiliates in Germany and abroad were submitted to the Supervisory Board. We requested and received extensive information on the Company s business plans for the fiscal year We devoted particular attention to the actions of the Board of Management related to the aim of developing the asset management business into the Company s third core business sector. In this regard, we intensively examined the acquisition of a The Supervisory Board also devoted its attention to the issue of risk analysis and capital allocation in the Allianz Group. We examined reports concerning the development of the Allianz Group in South America and in the health insurance sector. The Supervisory Board also deliberated on the initial plan of the German federal government, later rejected, to tax capital-sum life insurance policies.

7 Allianz Aktiengesellschaft 5 The Supervisory Board formed the Standing Committee, the Executive Committee and the Mediation Committee required under the German Codetermination Law from among its own members. The Standing Committee held three meetings in 1999, devoted mainly to the capital measures of the Company and other plans requiring the consent of the Supervisory Board. The Executive Committee, which is responsible for monitoring personnel-related matters, met three times in There was no need for the Mediation Committee to meet. KPMG Deutsche Treuhand-Gesellschaft AG Wirtschaftsprüfungsgesellschaft, Munich, audited the annual financial statements of Allianz AG and the consolidated financial statements of the Group as of December 31, 1999, as well as the management reports of Allianz AG and the Group, and provided them both with an unqualified auditor s opinion. The reports of KPMG on its audit of the annual financial statements of Allianz AG and the Group were distributed to all members of the Supervisory Board and discussed extensively in the presence of the independent auditors at the meeting of the Supervisory Board held for this purpose on May 18, Based on our own examination of the documents submitted by the Board of Management and the independent auditors, we have no objections and concur with the findings of the audit by KPMG. We agree with the Board of Management s recommendation for the appropriation of net earnings. The Supervisory Board has approved the annual financial statements prepared by the Board of Management, which are therefore adopted. Mr. Alfred Mackert resigned from the Supervisory Board on January 31, Mr. Jörg Thau, the replacement member elected by the employees, assumed his place on the Supervisory Board. Mr. Bernd Pischetsrieder resigned from the Supervisory Board as of February 29, Dr. Diethart Breipohl was appointed by the court to replace him on the Supervisory Board. Dr. Breipohl, the board member responsible for finance for over eight years, retired at his own request with effect as of December 31, The former area of responsibility of Dr. Breipohl was divided into two new Board of Management posts. Responsibility for the post of Finance was assumed by Dr. Paul Achleitner, who was appointed to the Board of Management of Allianz AG as of January 1, Responsibility for the new post of Asset Management and Other Financial Services was assumed by Dr. Joachim Faber, who was also appointed to the Board of Management as a regular member with effect as of January 1, Dr. Helmut Perlet and Mr. Michael Diekmann, formerly alternate members of the Board of Management, were appointed to the Board as regular members. We have thanked the departing members of the Supervisory Board and the Board of Management for their contributions. Munich, May 18, 2000 For the Supervisory Board: Dr. Klaus Liesen

8 6 Supervisory Board Dr. Klaus Liesen Chairman of the Supervisory Board Ruhrgas AG, Chairman Karl Miller Salaried employee Frankfurter Versicherungs-AG, Deputy Chairman Dr. Alfons Titzrath Chairman of the Supervisory Board Dresdner Bank AG Deputy Chairman Dr. Karl-Hermann Baumann Chairman of the Supervisory Board Siemens AG Norbert Blix Salaried employee Allianz Versicherungs-AG Dr. Diethart Breipohl Former member of the Board of Management Allianz Aktiengesellschaft, since March 10, 2000 Klaus Carlin Trade Union Secretary Commerce, Bank and Insurance Workers Union (HBV) Bertrand Collomb Président Directeur Général Lafarge Renate Daniel-Hauser Branch Manager, Allianz Versicherungs-AG, until February 24, 1999 Jürgen Dormann Chairman of the Board of Management Aventis S.A. Professor Dr. Rudolf Hickel Commerce, Bank and Insurance Workers Union (HBV), since January 9, 1999 Reiner Lembke Salaried employee Allianz Versicherungs-AG, since February 25, 1999 Frank Ley Salaried employee Allianz Lebensversicherungs-AG Alfred Mackert Salaried employee Vereinte Krankenversicherung AG, until January 31, 2000 Bernd Pischetsrieder Member of the Board of Management Volkswagen AG until February 29, 2000 Reinhold Pohl Custodian, Allianz Lebensversicherungs-AG Gerhard Renner Member of the Federal Executive Committee German Union of Commercial, Clerical and Technical Employees (DAG) Roswitha Schiemann Branch Manager Allianz Versicherungs-AG Dr. Albrecht Schmidt Speaker of the Board of Management Bayerische Hypo- und Vereinsbank AG Dr. Manfred Schneider Chairman of the Board of Management Bayer AG Dr. Hermann Scholl Chairman of the Executive Board Robert Bosch GmbH Jürgen E. Schrempp Chairman of the Board of Management DaimlerChrysler AG Jörg Thau Salaried employee, Vereinte Krankenversicherung AG, since February 1, 2000

9 Board of Management 7 Dr. Henning Schulte-Noelle Chairman Dr. Paul Achleitner Chief Financial Officer since January 1, 2000 Dr. Diethart Breipohl Chief Financial Officer until December 31, 1999 Detlev Bremkamp Europe, Reinsurance, ART Michael Diekmann Asia-Pacific, Central/Eastern Europe, Near East, Africa Dr. Joachim Faber Asset Management and Other Financial Services since January 1, 2000 Dr. Reiner Hagemann Property and Casualty Insurance, Germany, Personnel Director Herbert Hansmeyer North and South America Dr. Helmut Perlet Controlling, Accounting and Tax Dr. Gerhard Rupprecht Life and Health Insurance, Germany

10 8 Management Report REINSURANCE Besides serving as holding company for the Group, Allianz AG also acts as the Group s reinsurer, generating most of its premium income from Allianz subsidiaries and affiliates. In fiscal year 1999, gross premiums rose by 8.8%, to 5.2 (4.8) billion euros. Net premiums increased by 9.8%, to 3.3 (3.0) billion euros. The increase in premium income is attributable mainly to the fact that our property and casualty insurance companies in Germany were able to stabilize their premium income, compared to the previous year, while our share of the reinsurance business of the worldwide Allianz companies increased. The proportion of total premium income contributed by companies outside Germany rose substantially to 16.9% (13.3%). In Singapore, we are currently in the process of establishing an Allianz AG Reinsurance Branch by Hurricane Anatol in northern Europe and the storms Lothar and Martin in Germany and France. These natural disasters also caused a significant increase in our loss ratio. The net cost of natural disasters in 1999 (after deduction of loss event protection cover) amounted to 114 million euros. Loss expenses in the automobile reinsurance business were also substantially higher. The expenses resulting from individual majordamage claims primarily in the industrial insurance lines were hardly changed from the previous year. The expense ratio was 25.6% (26.2%). This ratio is mainly influenced by the volume of reinsurance commissions. In spite of the higher loss expenses, the necessary withdrawals from the claims equalization reserves, at 1.9 million euros, were considerably lower in 1999 than in the previous year (42.7 million euros). The underwriting result worsened to (+54.8) million euros. Before adjustments to the claims equalization reserve, the underwriting result declined to (+12.2) million euros. The loss ratio for own account (excluding redemptions and premium refunds) increased to 68.8% (65.4%), reflecting above all the negative impact of claims from natural disasters last year, including the earthquakes in Turkey and Greece (August and September 1999, respectively), but especially the earthquake in Taiwan (also September 1999). Extensive damage was also caused by Hurricane Floyd in September 1999, followed in December

11 Allianz Aktiengesellschaft 9 ALLIANZ AG Gross premiums written and results by insurance line in 1999 Gross premiums Net underwriting written result 1999 Change 1999 Change mn in % mn in mn Automobile 1, Fire Liability Personal accident Engineering Homeowners Household effects Business interruption Marine Legal expenses Life Health Other Total 5, Other lines of reinsurance include: > emergency assistance, > burglary, theft and robbery > omnium (comprehensive cover for goods during the manufacturing process), > extended coverage, > glass, > hail, > credit and bond, > water damage, > aviation, > aircraft and spacecraft liability, > storm, > animal (livestock), > other property and casualty business. In the following, we provide an overview of the specific developments affecting the various reinsurance lines: Premium income from automobile reinsurance increased to 1,287.4 (1,219.9) million euros. This line of reinsurance is heavily influenced by developments in the primary insurance market of Germany. Under the effect of stiff competition, the premium income of the Allianz companies continued to fall. Nonetheless, our premium income remained constant at approximately the level of the previous year because we acquired the automobile reinsurance business of Vereinte Versicherung AG. The frequency of claims and the unremitting increase in personal injury expenses weighed down on the underwriting result; this performance indicator, moreover, was also diminished by the existence of stop-loss contracts with Group companies in Australia and Greece. After the prescribed withdrawal of funds

12 10 Management Report from the claims equalization reserve, the underwriting result came to 72.4 ( 25.3) million euros. Premium income from fire reinsurance rose to (459.8) million euros. Various factors played a role in this increase. As in the past, intense rate competition in the primary insurance market exerted an adverse effect on premiums in the reinsurance business. Nonetheless, we were successful in our efforts to expand the number of our reinsurance relationships in Asia and generated more business in Europe with Allianz companies that were in the process of reorganizing their reinsurance programs. The underwriting result before adjustments to the claims equalization reserve was diminished by major-damage claims in industrial fire insurance and claims resulting from natural disasters. After transfers to the claims equalization reserve, the underwriting result declined to 18.8 (+9.6) million euros. Premium income from the reinsurance of engineering business retreated to (244.5) million euros, this decline being due most of all to fierce rate competition for industrial insurance business. The claims experience in this reinsurance line was adversely affected by natural disasters. We were nonetheless able to narrow the underwriting loss to 19.4 ( 27.2) million euros after transfers to the claims equalization reserve. In the business of homeowners reinsurance and joint household effects reinsurance, Allianz AG generated total premium income of (233.5) million euros. Loss expenses for claims under household effects insurance were approximately the same as in the previous year, but the storms of December 1999 caused loss expenses under homeowners insurance to soar, with the result that the overall underwriting result declined to the level of 4.2 (0.0) million euros. Premium income from liability reinsurance increased yet again in 1999, rising to (429.4) million euros, with most of the gains originating in Germany and Asia. The required transfer to the claims equalization reserve amounted to 38.8 million euros. The overall result improved to 11.1 ( 1.5) million euros. Premium income from personal accident reinsurance climbed to (404.7) million euros. The underwriting result after adjustments to the claims equalization reserve worsened to 11.9 (25.9) million euros, the main reason for which being the stop-loss contract for workers compensation insurance of our Group company Allianz Australia, which produced effects last year. The erosion of premium rates in business interruption reinsurance continued in 1999, with premium income falling to 70.0 (77.4) million euros. After transfers to the claims equalization reserve, this reinsurance line showed a loss of 2.9 (previous year profit: 0.8) million euros. Premium income from marine reinsurance increased to (111.3) million euros, specifically as a result of expanded business outside Germany. After transfers to the claims equalization reserve, the underwriting result came to 7.3 (7.7) million euros.

13 Allianz Aktiengesellschaft 11 In legal expenses reinsurance, premium income rose to (136.0) million euros. The underwriting result after adjustments to the claims equalization reserve was 7.3 (5.8) million euros. INVESTMENTS The book value of the investments of Allianz AG increased by 10% to 35.1 (31.9) billion euros in In life reinsurance, we were able to increase premium income by 9.3% to (754.1) million euros. This increase was generated for the most part in the German life insurance business. Due to the fact that primary insurers received a greater share of the profits in 1999, however, the underwriting result declined to 22.2 (43.3) million euros. Premium income from health reinsurance rose to the level of (117.3) million euros. Rising premium income in Germany and the business expansion underway in Asia were the driving factors behind the sales gain. Due to the unfavorable claims experience outside Germany, this reinsurance line closed with a loss of 6.3 (previous year profit: 0.8) million euros Premium income from other reinsurance lines in the amount of (572.5) million euros originated for the most part in Germany. The largest single item, at (347.2) million euros, was in the category of other property reinsurance. The premium income from other reinsurance lines also included 98.5 million euros from extended coverage reinsurance and 76.3 million euros from credit and bond reinsurance. The underwriting result dropped to 20.0 (+15.1) million euros. This loss was mainly the result of claims incurred in connection with the floodwaters that affected southern Bavaria at Whitsuntide 1999, as well as the storms Anatol and Lothar. Many losses resulting from these natural disasters were insured under combined insurance products for business customers. Real estate holdings rose by 23 million euros to 346 million euros in Net book value additions to investments in affiliated and associated companies amounted to 2.6 billion euros, bringing the total under this heading to 22.3 billion euros. In the following, we provide an overview of the most important transactions of last year: > We acquired First Life Insurance in South Korea and launched two joint ventures in Taiwan. > The insurance holdings held jointly with Münchener Rückversicherungs-Gesellschaft AG were deglomerated further. In connection with this restructuring, a 15.6% equity interest in Allianz of America was transferred to Allianz AG, so that we now hold 100% of the stock in this company. In exchange, Allianz AG transferred its last remaining holdings in American Re, plus approximately 4.2% of ERGO Versicherungsgruppe AG, to Münchener Rückversicherungs-Gesellschaft AG. The remaining shares in ERGO Versicherungsgruppe were sold on the market.

14 12 Management Report > We participated in various capital increases, including one for Deutsche Bank, AG. > In conjunction with Dresdner Bank AG and Münchener Rückversicherungs- Gesellschaft AG, we founded a company that offers software for the efficient administration of registered shares. This product has been very well received in the market. The category of Other investments remained virtually unchanged at 3.8 billion euros. This item consisted mostly of > stocks and other equity interests in the amount of 1.2 (0.9) billion euros; > fixed-income securities with a book value of 2.4 (2.7) billion euros; > bank deposits and miscellaneous investments in the amount of 0.2 (0.2) billion euros. The market value of real estate holdings, dividend-bearing securities (investments in affiliated and associated companies, stocks and investment certificates) and bearer bonds as of December 31, 1999, was 59.5 (51.9) billion euros. They were valued on the balance sheet at 25.5 (22.9) billion euros. Current income from investments edged up slightly, by 42.4 million euros, to 1,665.9 million euros. This result was the product of various opposing developments: > At million euros, the profit transferred by Allianz Versicherungs- AG was lower than the 1998 figure by million euros. > Income from equity holdings was slightly lower, at million euros. > On the other hand, income from other investments rose by million euros to 1,100.2 (903.5) million euros. This item also contains interest on funds held by others in the amount of (514.3) million euros. Realized investment gains jumped significantly from to million euros. The following transactions contributed to the higher profits: > Profits of million euros were realized on the sale of stocks and equity holdings in affiliated and associated companies. About 80% of these profits resulted from the disposal of the shares held in ERGO Versicherungsgruppe. Funds held by others to reinsurance business assumed increased to 8.7 (8.1) billion euros. > Gains of 16.6 million euros were realized on the sale of real estate. > An additional 55.6 million euros in profits were realized on the sale of fixedincome securities and investment certificates. Realized investment losses totaled 27.6 (115.0) million euros.

15 Allianz Aktiengesellschaft 13 Depreciation and writedowns amounted to (73.0) million euros. This amount includes: > million euros on equity holdings in affiliated companies (Allianz of Asia-Pacific and Africa) > 16.3 million euros on securities > 16.4 million euros on real estate As a result of the German tax reform, the company was obligated for the first time in 1999 to reinstate the original values of certain investments, the effect of which was to increase the company s earnings in The law states that writedowns taken on investments in earlier years must, under certain conditions, and specifically when the current market value of these investments no longer justifies any more writedowns, be reversed and the original value of the investments reinstated. The reversal of all writedowns taken on investments in the past produced an amount of million euros, including: At 1,979.8 (1,515.0) million euros, net income from investments showed a 31% gain. This figure represents the net result after > deduction of investment management expenses in the amount of 97.4 (92.0) million euros; > deduction of interest expenses in the amount of (360.0) million euros, incurred almost exclusively on loans from Group companies; > the allocation of (63.5) million euros to the special untaxed reserve. Of this amount, million euros related to the original values reinstatement reserve. Of the net income figure, (511.0) million euros were credited to the underwriting account for the allocated interest return. > million euros on equity holdings in affiliated and associated companies; > 39.1 million euros on securities; > 0.4 million euros on real estate. The earnings effect of the reinstatement of original values will be distributed over a period of five years. After allocation to the original values reinstatement reserve, therefore, only 29.4 million euros were posted to the income statement in fiscal year 1999.

16 14 Management Report TOTAL EARNINGS RISK MANAGEMENT Non-underwriting activities produced an overall profit of 1,152.7 (881.9) million euros. Added to the underwriting profit of (+54.8) million euros, earnings before taxes came to 1,030.1 (936.7) million euros. Tax expenses increased to (239.1) million euros. The higher tax expenses are a reflection of the accruals established by the company in the amount of million euros in anticipation of the taxation plans of the German federal government. Under these plans, loss reserves will no longer be recognized in their full amount, but only at their discounted value. After tax expenses, net income for the year amounted to (697.6) million euros. Of this amount, (348.8) million euros were transferred to the reserve for other appropriated retained earnings, leaving (348.8) million euros in unappropriated net income. The annual meeting of shareholders to be held on July 12, 2000 will be asked to approve an additional appropriation of 47.8 million euros from net income to retained earnings. The dividend to be paid on each share qualifying for dividends has been increased to 1.25 (1.12) euros. As an insurer, we are used to handling and mastering risk. Risk management is therefore an integral aspect of our controlling processes. Within risk management, a distinction is made between several types of risk. > Premium risk is defined as the danger of insurance premiums not being sufficient to cover loss expenses. > Reserve risk is defined as the danger of loss reserves formed in previous years not being sufficient to cover actual claims. > Credit risk concerns the risk of default on the part of debtors of the company, mainly reinsurers. > Investment risk forms another category. > And finally, operating risk arises from factors like hardware, software, or application programs. What risk-management instruments do we employ to protect ourselves against these dangers? Premium risks. Our pricing methods and guidelines are the main means of managing premium risks. In addition, the Group limits its own liability by, where necessary, passing on a portion of the assumed risks to the international reinsurance markets. Moreover, we engage in scientific loss prevention, carrying out ongoing studies for the manufacturing industry and in the automobile sector, the sole purpose of which is to reduce the probability of a loss occurring and to minimize loss expenses.

17 Allianz Aktiengesellschaft 15 Natural disasters like earthquakes, storms, and floods represent a special kind of challenge for risk management. While they occur less frequently than other loss-causing events, their consequences can often go well beyond the usual level of loss, for instance when entire regions are devastated. We employ modeling techniques to master such risks. This involves collating the data on earthquakes or weather patterns in such a way that natural disaster scenarios can be simulated. To equalize fluctuations in the claims experience, Allianz AG disposes of claims equalization reserves in the amount of 608 million euros. Reserve risks. Reserves need to be set up for insurance claims that have been submitted but not yet adjusted. To assess the appropriate amounts, we make use of historic values. In addition, we limit the risk by continually monitoring the development of these reserves. The accumulated know-how is channeled back into current assessments. Investment risks. Investment is an integral part of the insurance protection service. The function of investments is to guarantee the promised benefits of insurance products. We need to take this close relationship into account when assessing investment risks. We distinguish between market, credit and liquidity risk when managing the risks arising from our investments. > Market risks arise from volatility in stock market and other capital market prices. We use sensitivity analyses and stress tests to monitor the impact of negative developments. The economic risk arising from changes in exchanges rates is low because our benefit commitments are backed by funds in the same currency. > Credit risks relate to the risk of default by debtors and the possibility of deterioration in their credit-worthiness. We limit this risk by setting high requirements for the financial solidity of our debtors and diversifying exposure. Credit risks. When selecting our reinsurance partners, we only consider companies that offer excellent security. To control credit risk, our Group companies employ wide-ranging rating information that is either generally available or acquired through internal studies. Derivative financial instruments such as swaps, options and futures are also used selectively to hedge against changes in prices and interest rates. Our internal investment and monitoring guidelines tend to be even stricter than the respective regulatory requirements.

18 16 Management Report Market and credit risks arising from the deployment of derivatives are subject to particularly stringent checks. > Credit risks are assessed by measuring gross replacement values. > Market risks are monitored using up-to-date value-at-risk calculations and stress tests, and by fixing stop-loss limits. > Liquidity risk is monitored by reconciling our portfolio of investments with the obligations arising from our insurance operations. In addition, this risk is limited by planning our cash flows from ordinary activities. This approach ensures that we are able to meet the payment obligations arising from our insurance policies at all times. Moreover, the composition and diversity of our investments are also to be seen as part of risk management. Our organization limits the risks arising from our investments by strictly separating trading, settlement and controlling. Operating risks. The millennium changeover was viewed as a central risk for hardware, software and application programs alike. Allianz AG succeeded in averting the dangers, and the transition to the new year passed without a problem. Similarly, no problems have been reported in the course of the present fiscal year February 29 was thought to be a particularly dangerous date. As a result, we can report a positive outcome of the intense preparations we carried out in previous years. Legislators, regulatory authorities, rating agencies, and capital markets all represent additional risk-monitoring bodies. Between them they define the minimum level of precautionary measures in the individual countries and internationally. We go beyond the minimum requirements, constantly refining our risk-management models. To do this, we evaluate our risk data systematically, meaning that we are able to enhance the quality and efficiency of our risk management as a result. The international rating agencies Standard & Poor s and A.M. Best awarded their highest AAA and A++ ratings to the Allianz Group. LONG-TERM INCENTIVE PLAN Our Long-term Incentive Plan, which is in effect for several years at a time, is a prime example of our efforts in this direction. Under this plan, additional compensation is earned only if, after a two-year waiting period, two conditions are met: > Our share price must have outperformed the Dow Jones STOXX Index, and > it must have risen by more than 20%. The senior managers of all Group companies are elligible to receive this component of compensation.

19 Allianz Aktiengesellschaft 17 OUTLOOK As the Group s reinsurer, Allianz AG participates in the premium income and earnings performance of the Group subsidiaries and affiliates. Because the greater part of this business still derives from Germany, our sales and earnings forecasts are heavily influenced by the developments in this primary insurance market. Although the higher premiums in the German automobile reinsurance began to reverse the downward trend in this market, we do not yet expect positive results in the year The industrial insurance market is still subject to intense rate competition. On the whole, we expect that premium income for the current fiscal year will be approximately the same as in the previous year. The losses feared in connection with the millennium changeover have not materialized to date, indicating that the initiatives undertaken by the company to reduce and prevent losses by working closely with customers were indeed successful. Because later claims could still be filed in certain reinsurance lines, however, we are not yet able to rule out loss expenses in relation to the millennium changeover. Barring extraordinary major-damage claims, natural disasters and turmoil in the capital markets, we predict that earnings for the current fiscal year will remain on the level of the previous year.

20 18 Recommendation for Appropriation of Profit RECOMMENDATION FOR APPROPRIATION OF PROFIT ALLIANZ AKTIENGESELLSCHAFT Unappropriated earnings of 354, are at the disposal of the annual meeting of shareholders. We propose that this amount be appropriated as follows: 1. Distribution of a dividend of 1.25 per qualifying share, any amount payable on shares held by the company being carried forward to new account; 2. Allocation of 47, to other appropriated retained earnings. Munich, May 2, 2000 Allianz Aktiengesellschaft The Board of Management Dr. Schulte-Noelle Bremkamp Dr. Faber Hansmeyer Dr. Rupprecht Dr. Achleitner Diekmann Dr. Hagemann Dr. Perlet

21 Financial Statements Allianz Aktiengesellschaft

22 20 Balance Sheet at December 31, 1999 Allianz Aktiengesellschaft 21 Allianz Aktiengesellschaft 21 ASSETS EQUITY AND LIABILITIES Note s 000s 000s A. Intangible assets B. Investments 1 4 I. Real estate 345, ,744 II. Investments in affiliated and associated companies 22,268,051 19,652,862 III. Other investments 3,805,316 3,816,590 IV. Funds held by others under reinsurance business assumed 8,709,931 8,134,722 35,128,824 31,926,918 C. Receivables I. Accounts receivable on reinsurance business 430, ,208 including 000s 124,713 (55,228) from affiliated companies including 000s 234,320 (1,309) from other companies in which long-term equity investments are held II. Other receivables 914, ,498 including 000s 841,722 (673,924) from affiliated companies including 000s 303 (156) from other companies in which long-term equity investments are held 1,345,652 1,049,706 D. Other assets I. Tangible fixed assets and inventories II. Cash with banks, checks and cash on hand 63,102 29,840 III. Own shares 237 arithmetical value: 000s 2 ( ) IV. Miscellaneous assets ,005 30,086 E. Prepaid expenses 5 I. Accrued interest and rents 55,631 57,706 II. Other prepaid expenses 99, , , ,532 Total assets 36,694,876 33,185,297 Note s 000s 000s 000s A. Shareholders equity 6 I. Capital stock 627, ,113 II. Additional paid-in capital 7,182,716 7,094,520 III. Appropriated retained earnings 1. required by law 1,229 1, for own shares other 2,473,556 2,046,940 2,475,022 2,048,169 IV. Unappropriated retained earnings 354, ,809 10,640,066 10,117,611 B. Participating certificates 7 449, ,519 C. Special untaxed reserve 8 251, ,656 D. Insurance reserves I. Unearned premiums 1. Gross 825, , less: amounts ceded 293, , , ,311 II. Aggregate reserve 1. Gross 8,303,183 7,751, less: amounts ceded 979, ,432 7,324,063 6,818,561 III. Reserve for loss and loss adjustment expenses 1. Gross 5,924,568 5,456, less: amounts ceded 2,506,071 2,205,545 3,418,497 3,250,568 IV. Reserve for non-experience-rated premium refunds 1. Gross 115, , less: amounts ceded 49,773 47,679 65,455 63,421 V. Claims equalization and similar reserves 607, ,395 VI. Other insurance reserves 1. Gross 214, , less: amounts ceded 23,951 23, , ,043 12,137,910 11,425,299 Note s 000s 000s E. Other accrued liabilities 9 2,657,519 2,540,987 F. Funds held under reinsurance business ceded 1,095,255 1,042,438 G. Other liabilities 10 I. Accounts payable on reinsurance business 457, ,232 including 000s 405,468 (377,422) to affiliated companies including 000s 6,026 (6,976) to other companies in which long-term equity investments are held II. Liabilities to banks 46 III. Miscellaneous liabilities 9,006,141 7,070,492 including taxes of 000s 61,749 (38,880) including 000s 8,616,523 (6,839,634) due to affiliated companies including 000s 167,954 (100,841) due to other companies in which long-term equity investments are held 9,463,241 7,482,770 H. Deferred income Total equity and liabilities 36,694,876 33,185,297

23 22 Income Statement For the period from January 1 to December 31, 1999 Note s 000s 000s 000s I. Underwriting account 1. Premiums earned - net a. Gross premiums written 11 5,180,240 4,760,383 b. Premiums ceded 1,897,722 1,771,719 3,282,518 2,988,664 c. Change in unearned premiums - gross 26,059 42,296 d. Change in unearned premiums ceded 6,285 29,302 19,774 12,994 3,262,744 3,001, Allocated interest return - net , , Other underwriting income - net 19,717 18, Loss and loss adjustment expenses - net a. Claims paid aa. Gross 3,689,277 3,355,950 bb. Amounts ceded in reinsurance 1,324,694 1,252,391 2,364,583 2,103,559 b. Change in reserve for loss and loss adjustment expenses aa. Gross 327,656 21,489 bb. Amounts ceded in reinsurance 249,856 68,204 77,800 46,715 2,442,383 2,150, Change in other insurance reserves - net , , Expenses for non-experience-rated premium refunds - net 28,568 34, Underwriting expenses - net , , Other underwriting expenses - net 262, , Subtotal 124,483 12, Change in claims equalization and similar reserves 1,895 42, Underwriting result - net 122,588 54,842

24 Allianz Aktiengesellschaft 23 II. Non-underwriting account Note s 000s 000s 000s 1. Investment income 15 2,766,825 2,218, Investment expenses , ,466 1,979,789 1,514, Allocated interest return 538, ,987 1,441,530 1,004, Other income , , Other expenses , , , , Non-underwriting result 1,152, , Earnings from ordinary activities before taxation 1,030, , Income taxes , ,346 less amounts charged to other companies in the Group 584, , , , Other taxes 2,303 2,584 less amounts charged to other companies in the Group ,990 2, , , Net income , ,612

25 24 Notes to the Financial Statements of Allianz AG Legal Regulations The financial statements and Management Report have been prepared in accordance with the regulations contained in the German Commercial Code (HGB), the Corporation Law (AktG), the Law on the supervision of insurance enterprises (VAG), and the Government Order on the external accounting requirements of insurance enterprises (RechVersV). The above-mentioned regulations for the Company as a reinsurance company not only address the special contents of the financial statements and Management Report but also the extended deadlines for their preparation. All amounts in the financial statements are stated in and rounded out to euro thousands ( 000s), the figures for the previous year being converted accordingly. The rate of exchange is DM for 1. Accounting, Valuation and Calculation Methods Requirement to restate original values, revaluations and special untaxed reserve The requirement to restate original values was applied for the first time in fiscal year This requirement involves amounts being written up on assets, which have been written down to a lower market value in previous years, if a higher market value is attributed to them on the balance sheet date. Assets were written up either to the amount of the amortized cost or to a lower market value or stock-market value. During the year under review, amounts were written back for securities and investments in affiliated enterprises. They were reported as income and 80 per cent was taken to the special untaxed reserve in accordance with fiscal regulations. This reserve will be released over a maximum period of 4 years. Real estate (i.e. real property and equivalent rights and buildings including buildings on leased land) is recorded at cost less accumulated depreciation. Depreciation has been calculated at the highest rates allowable for tax purposes using the straight-line or declining balance methods. Investments in affiliated and associated enterprises and other long-term equity investments are recorded at cost and written down to fair market value in accordance with the German Commercial Code ( 253(2) HGB). Stocks, investment fund units, bearer bonds and other fixed and variable income securities, miscellaneous investments and own shares are valued at whichever is lower, the acquisition cost or fair market value on the balance sheet date in accordance with the German Commercial Code ( 341b(2) in conjunction with 253(1) and (3) HGB). An average cost has been established where securities of the same kind were purchased at different cost. Tangible and intangible fixed assets and inventories, miscellaneous assets are recorded at cost less tax-allowable depreciation or amortization. Assets of low value are written off immediately in full. Receivables have been recorded at face value less repayments. They consist of the following: > Loans to affiliated enterprises, > Debentures and loans, > Bank deposits, > Funds held by others under reinsurance business assumed, > Accounts receivable on reinsurance business, > Other receivables, > Cash with banks, checks and cash on hand, > Accrued interest and rents.

26 Allianz Aktiengesellschaft 25 Insurance reserves consist of the following: Liabilities consist of: > Unearned premiums, > Aggregate policy reserve, > Reserve for loss and loss adjustment expenses, > Reserve for premium refunds (non-experience-rated), > Other insurance reserves. These reserves were set up according to information provided by the ceding insurers, estimated to a certain extent. The reinsurers shares were calculated in accordance with the reinsurance contracts. > Participating certificates, > Funds held under reinsurance business ceded, > Accounts payable on reinsurance business, > Other liabilities. These liabilities are recorded at the amounts payable on maturity. Annuities are recorded at present value. Deferred income Premiums and discounts carried forward as prepaid expenses are spread over the remaining life of the related loans outstanding. The claims equalization reserve, the reserve for nuclear plants and the product liability reserve for major pharmaceutical risks were calculated for the net retention portion according to 341h of the German Commercial Code in conjunction with 29 and 30 of the Government Order on the external accounting requirements of insurance enterprises. Other accrued liabilities The pension accruals are calculated actuarially based on the updated 1998 mortality tables of Dr. K. Heubeck. The full amount of the liability calculated in this way has been recorded in the financial statements. Miscellaneous accrued liabilities have been recorded as projected. The accrued liabilities for early retirement benefits and employee long-service awards have been calculated using actuarial principles. Approximation and simplification procedures The reinsurance cessions of individual ceding insurers are accounted for up to 12 months late owing to their statements of account not being received in time. This business accounts for nine percent of gross premium income. Foreign currency translation Investments denominated in foreign currencies are stated at an amount based on the local currency and the exchange rate on the balance sheet date. The modified or strict lower of either cost or market principles is used. The other balance sheet items are valued in accordance with established principles for currency translation for open and where applicable closed positions.

27 26 Supplementary Information on Assets 1 Changes under asset headings A., B.I. through B.III. in fiscal year 1999 Values stated at 12/31/1998 Additions 000s % 000s A. Intangible assets Other intangible assets 2, B.I. Real estate 322, ,510 B.II. Investments in affiliated and associated enterprises 1. Investments in affiliated enterprises 18,518, ,252, Loans to affiliated enterprises 728, , Investments in other enterprises 402, , Loans to other enterprises in which long-term equity investments are held 2, Subtotal B.II. 19,652, ,709,443 B.III. Other investments 1. Stocks, investment fund units and other variable income securities 945, , Bearer bonds and other fixed income securities 2,684, ,773, Other loans Debentures and loans , Bank deposits 175, , Miscellaneous investments 10, ,625 Subtotal B.III. 3,816, ,079,389 Subtotal B.I - B.III. 23,792, ,829,342 Total 23,794,251 6,829,443 2 Market value of investments The market value of holdings of real estate, dividend-bearing stocks (investments in affiliated and associated enterprises, other shares and investment fund units) and bearer bonds at December 31, 1999 amounted to 59.5 billion. The corresponding balance sheet valuation of these investments was 25.5 billion. The following valuation methods have been used to arrive at market value: Real estate Land and buildings as a rule at capitalized earnings value, new buildings at cost, in each case as at December 31, The values are broken down as follows between individual asset categories: Book value Market value Valuation reserve 12/31/ /31/ /31/1999 in billions in billions in billions Real estate Dividend-bearing stocks Bearer bonds Total

28 Allianz Aktiengesellschaft 27 Transfers Disposals Revaluation Depreciation Net Additions (+) Values stated at 12/31/1999 Net Disposals ( ) 000s 000s 000s 000s 000s 000s % 1,335 1, , , , , , , , , ,937,653 21,456, ,539 50, , , , , , ,954 2,826 1,072, , , ,615,189 22,268, ,046 19,643 1, ,455 1,207, ,109,964 19,472 14, ,859 2,353, , ,903 12, , , ,851 10, ,113,517 39,115 16,261 11,274 3,805, ,188, , , ,626,697 26,418, ,188, , , ,625,463 26,419,714 Dividend-bearing stocks Quoted companies at the stock exchange price quoted on the last trading day of Nonquoted companies at their net worth calculated by the DVFA method or at acquisition cost. 4 Disclosure of equity investments The information required by the German Commercial Code ( 285 no. 11 HGB) is filed with the Commercial Register at the Municipal Court in Munich. Bearer bonds and other fixed income securities At the stock exchange value quoted on the last trading day of Miscellaneous investments (Assets B.III.5.) These consist entirely of holdings in private limited liability companies. 5 Other prepaid expenses (Assets E.II.) This heading includes 000s 27,083 (26,571) in respect of repayment premiums on loans to affiliated enterprises and 000s 72,542 (91,986) in respect of debt discount on miscellaneous liabilities. Collateral Assets included in the balance sheet totaling 000s ( ) are subject to restricted usage through collateral.

29 28 Supplementary Information on Liabilities 6 Shareholders equity (Liabilities A.I.) In March 1999, the capital stock of the Company and all other DM amounts in the statutes were restated in euros. In order for each no-par value share to have a mathematical value of precisely 2.56 euros as a proportion of the capital stock, the capital was increased from Company resources without issuing any new shares by 867, euros to 626,979, euros, on the basis of the resolution adopted by the annual meeting of shareholders. In September 1999, a further 356,000 shares with a mathematical value of 911,360 euros (0.1 percent) as a proportion of the capital stock were issued at a price of euros each, enabling employees of Allianz Group enterprises in Germany to take up 233,055 employee shares at a price of euros. 122,000 shares with a mathematical value of 312,320 euros as a proportion of the capital stock were sold on the stock market at an average price of euros in December The Company held 945 of its own shares with a mathematical value of 2, euros (less than 0.1 percent) as a proportion of the capital stock at the end of The capital stock at December 31, 1999 amounted to 627,891,200 euros, divided into 245,270,000 registered shares. The shares have no par value as such but a mathematical value of 2.56 euros each as a proportion of the capital stock. At the end of the year under review there was authorized unissued capital with a nominal value of 135,492, euros, which can be issued at any time up to September 30, The preemptive rights of shareholders can be excluded up to an amount of 12,574, euros in order to utilize fractions arising from smoothing the amount of the increase or of the capital and offer new shares to the holders of shares issued against options exercised during the period between adoption of the resolution to increase the capital and publication of the subscription offer. There was a further 30,677, euros of authorized unissued capital II which can be utilized up to July 7, The pre-emptive rights of shareholders can be excluded in order to issue the new shares at a price not materially below the quoted market value. Authorized unissued capital III can be used Additional paid-in capital (Liabilities A.II.) 000s 12/31/1998 7,094,520 + Transfer from capital increases in ,196 12/31/1999 7,182,716 Appropriated retained earnings (Liabilities A.III.) From Capital unapprop- From increase from Allocation riated net company for own 12/31/1998 retail income reserves interests 12/31/ s 000s 000s 000s 000s 000s 1. Required by law 1,229 1, For own shares Other 2,046,940 73, , ,473,556 Total 2,048,169 73, , ,475,022

30 Allianz Aktiengesellschaft 29 at any time up to July 7, 2003 to issue shares with a nominal value of 51,129, euros for a noncash consideration. The pre-emptive rights of shareholders are excluded. Authorized unissued capital IV of 2,469, euros is available for issue at any time up to July 10, 2002, which can be used with the pre-emptive rights of existing shareholders excluded to issue shares to employees of Allianz AG or of other companies in the Group. Authorized unissued capital V of 2,556, euros is available for issue up to July 7,2003 and can be used to protect the holders of conversion or subscription rights from dilution in the event of future capital increases for cash by granting them a pre-emptive right to subscribe for new shares. To that extent the pre-emptive rights of shareholders are excluded. The Company had conditionally authorized capital with a nominal value of 10, euros on which subscription or conversion rights, with pre-emptive rights for shares, can be issued up to June 30, Participating certificates (Liabilities B.) At December 31,1999, Allianz AG had issued 5, participating certificates. The dividend payable on a participating certificate is 240% of that paid by the Company on an Allianz no-par-value share; a minimum yield of 5% of the nominal value ( 5.12) of the participating certificate is guaranteed. Redemption of the participating certificates cannot be demanded by a holder before the end of the year 2001 at the earliest. The guaranteed redemption price in this case for all the participating certificates issued to date is a uniform The total guaranteed redemption price is shown under this item in the Balance Sheet. Profit applicable to participating certificates is reported under Other Liabilities.